Topic: Q2 data of Germany’s most popular lottery products are in the books, here's our analysis:

After a very strong Q1 (4x peak jackpots), the EuroJackpot (eNuW: 45% of ZEAL's lottery billings) again showed a stellar performance. Two peak jackpots were spread apart in 12 draws (i.e. 6 weeks), meaning that during the build up to the high jackpot, the lottery stakes grew gradually over time. This resulted in an elevated average jackpot size of € 61m (vs. c. € 42m on average). Accordingly, lottery stakes remitted nationwide rose by 23% yoy to € 1.27bn. Even more remarkable, this accounts for another 10% qoq growth over the blow-out Q1’24 and is 52% above the historical average (see p. 2).

On the other hand, Lotto 6aus49

(eNuW: 45% of ZEAL's lottery billings) did not peak even once and with the largest jackpot of only € 24m (vs. € 50m peak jackpot) showed a rather uninspiring environment in Q2. As a result, the remitted stakes came in at € 844m, down 8% yoy and 8% qoq (see p. 2).

Combined, the strong EuroJackpot and the muted Lotto 6aus49 led to an increase of lottery stakes of 8% yoy and 2% qoq to € 2.12bn, which is a stellar 17% above the historical

average

(see p. 2).

In sum, we expect Zeal to strongly capitalize on the Q2 jackpot tailwinds in terms of a) user intake of c. 200k new registrations (eNuW) and b) an elevated user activity leading to a better product mix and thus a higher billings margin (eNuW: 13% in Q2), both serving the current top-line momentum.

As a result, a guidance hike as early as Q2 results seems ever more likely, as we now expect overall sales of € 155m (vs. guidance of € 140-150m). On top of 1) H1’s superb lottery environment, pushing H1 sales and more importantly the user base above prior expectations, H2's top-line momentum should continue,

even in muted lottery environments,

 due to 2) ZEAL’s lottery billings margin expansion to >15% in H2 and thanks to 3) the expansion of  the Games business. Consequently, EBITDA should now arrive at the top end of the guidance (eNuW: € 42m; guidance: € 38-42m) despite increasing indirect costs (eNuW: € 25m, +78% yoy) due to investments into a new social lottery and assuming marketing expenses of € 46m (guidance: € 40-45m).

Against this backdrop, we reiterate our BUY recommendation and increase our PT to € 54.00 (old: € 53.00), based on DCF.